Beyond the Basic Elements of an Outsourcing Agreement Termination Provision
There have been many occasions on which I have heard the words, "We want a relationship with the provider that will allow us to put the contract in the drawer and forget about it.
" In reality, if the contract needs to come out of the drawer, it is advisable to have the current market provisions around remedies to cover foreseeable problems that might arise.
In addition to formal governance escalation and provisions for remediation, there may be the unfortunate need for the finale remedy, termination of the agreement.
The need to terminate could arise from performance issues, or your business requirements could change significantly due to unforeseen business conditions and your provider is unwilling or unable to adjust.
This might predicate a need to terminate the outsourcing agreement even with superior performance.
Other considerations may include the provisions to terminate portions of the agreement or a specific service component/tower.
The Basics There are some classical termination provisions that will be required and should not cause too much push back from most providers you will likely be negotiating with.
These include some you have no doubt included before in other various agreements: termination for convenience, termination for cause, termination assistance and right to hire staff post termination assistance.
There are others that you may agree are common or essential.
However, if the provider is pushing back on the common or essential termination provisions, you may need to step back and examine the relationship.
There may be other unrelated deal elements impacting the ability of the provider to accept even the most seemingly elementary termination provision.
Beyond The Basics Other important considerations need examination as you design your contract strategy.
Specific to termination, not all termination provisions may be essential to your contract.
You need to assess which are most important to your strategy and bring those forward.
You will not likely be able to tilt an agreement with all client-favorable termination provisions.
Risk mitigation should be considered for any termination provision that the provider is pressing for that is neutral or less favorable to the client.
While some provisions seem obvious, there may be certain facets to them that require attention.
Termination assistance is one example.
While you will likely insist on this provision, the type of support, staffing, and duration require scrutiny.
Another and often overlooked termination assistance provision is how to keep the provider accountable for service performance during a termination assistance period.
In this case, enforcing the provisions in the service level agreement during a termination period is advisable.
It is essential to plan for an effective approach to getting superior performance during a termination assistance period, whether at term or during an early termination demand.
Termination fees can be fixed, but may have a variable element.
This may be associated with special support during a termination assistance period.
Audit rights are commonly included in sourcing agreements around the providers' charges for services.
These rights should also embrace termination fess when they are variable.
Another approach to determining the provider's reception to certain termination provisions, as well as others for that matter, should start even before you select a provider.
Create an opportunity during the request for proposal process to evaluate contract terms and conditions as part of your selection process.
Ask the providers to give their position on a set of terms and conditions you feel are going to be required.
This list should include some of the termination provisions you will be planning on including in your final contract.
Final Thought Of course, experience is your best ally.
Use other resources, such as recent agreements from other services with other providers, as a place to start to put your arms around your strategy.
The sourcing marketplace is constantly changing approach, concepts and service offerings.
Consider outside assistance with firms that regularly deal with sourcing agreements, both from a legal terms perspective as well as from a business terms perspective.
" In reality, if the contract needs to come out of the drawer, it is advisable to have the current market provisions around remedies to cover foreseeable problems that might arise.
In addition to formal governance escalation and provisions for remediation, there may be the unfortunate need for the finale remedy, termination of the agreement.
The need to terminate could arise from performance issues, or your business requirements could change significantly due to unforeseen business conditions and your provider is unwilling or unable to adjust.
This might predicate a need to terminate the outsourcing agreement even with superior performance.
Other considerations may include the provisions to terminate portions of the agreement or a specific service component/tower.
The Basics There are some classical termination provisions that will be required and should not cause too much push back from most providers you will likely be negotiating with.
These include some you have no doubt included before in other various agreements: termination for convenience, termination for cause, termination assistance and right to hire staff post termination assistance.
There are others that you may agree are common or essential.
However, if the provider is pushing back on the common or essential termination provisions, you may need to step back and examine the relationship.
There may be other unrelated deal elements impacting the ability of the provider to accept even the most seemingly elementary termination provision.
Beyond The Basics Other important considerations need examination as you design your contract strategy.
Specific to termination, not all termination provisions may be essential to your contract.
You need to assess which are most important to your strategy and bring those forward.
You will not likely be able to tilt an agreement with all client-favorable termination provisions.
Risk mitigation should be considered for any termination provision that the provider is pressing for that is neutral or less favorable to the client.
While some provisions seem obvious, there may be certain facets to them that require attention.
Termination assistance is one example.
While you will likely insist on this provision, the type of support, staffing, and duration require scrutiny.
Another and often overlooked termination assistance provision is how to keep the provider accountable for service performance during a termination assistance period.
In this case, enforcing the provisions in the service level agreement during a termination period is advisable.
It is essential to plan for an effective approach to getting superior performance during a termination assistance period, whether at term or during an early termination demand.
Termination fees can be fixed, but may have a variable element.
This may be associated with special support during a termination assistance period.
Audit rights are commonly included in sourcing agreements around the providers' charges for services.
These rights should also embrace termination fess when they are variable.
Another approach to determining the provider's reception to certain termination provisions, as well as others for that matter, should start even before you select a provider.
Create an opportunity during the request for proposal process to evaluate contract terms and conditions as part of your selection process.
Ask the providers to give their position on a set of terms and conditions you feel are going to be required.
This list should include some of the termination provisions you will be planning on including in your final contract.
Final Thought Of course, experience is your best ally.
Use other resources, such as recent agreements from other services with other providers, as a place to start to put your arms around your strategy.
The sourcing marketplace is constantly changing approach, concepts and service offerings.
Consider outside assistance with firms that regularly deal with sourcing agreements, both from a legal terms perspective as well as from a business terms perspective.